Which of the following businesses is most likely to use a job order costing system?

Activity 2

Question 1

Which of the following are cost accounting systems?

(a) Job order costing (b) Process costing (c) Activity-based costing (d) Only A and B (e) A, B, and C

Question 2

Which of the following business is most likely to use a job order costing system?

(a) Automobile manufacturer (b) House paint manufacturer (c) Automotive repair shop (d) Oil refiner (e) Cannery

Question 3

Issuing a materials requisition results in which of the following journal entries?

(a) A debit to Work in Process Inventory and a credit to Materials Inventory. (b) A debit to Materials Inventory and a credit to Work in Process Inventory. (c) A debit to Materials Inventory and a credit to Accounts Payable. (d) A debit to Manufacturing Overhead and a credit to Materials Inventory. (e) None of the above

Question 4

Time sheets show total direct labor of $50,000. Payroll records show factory salaries at $12, and factory maintenance salaries at $6,000. Making the month-entry to record labor to the Work in Process Inventory account will require a debit for how much?

(a) $67, (b) $56, (c) $62, (d) $50, (e) $18,

Question 5

Wind Power Ltd uses a job order costing system. During the month of July, Wind Power Ltd has only one job W236. This job was started in late June and completed on 26 July.

Following are the cost information for job W236, other July costs, and relevant annual estimates.

Material issued: $10, (75% for direct use on job W236 and 25% for indirect use through July) Labour Direct labour for job W (300 DLH @$25 per DLH) 7, Indirect labour for July 450 Other July costs Depreciation (40% Factory and 60% Administrative) 2, Others (80% Factory and 20% Administrative) 800

Overhead cost driver: Direct Labour Hour (DLH) Estimated Annual Overhead 45, Estimated Annual DLH 3, Mark-up as a percent of cost 25%

Required

(a) Compute the overhead to be applied for July to job W236 upon completion on 26 July.

(b) Calculate the total manufacturing costs for July for job W236.

(c) Prepare the journal entry when job W236 was completed on 26 July, assuming that the balance of work-in-process inventory for job W236 on 1 July was $1,200.

(d) Determine the profit on job W236 when it was sold on 26 July.

(e) Compute the under- or over-applied overhead for July.

Question 6*

Job Costing Elegance Interior Design Ltd uses a job order cost accounting system and applies the overhead on the basis of direct labour cost. At the beginning of the year, Elegance estimated the following: Overhead $270, Direct labour cost $900, Direct labour hours 150,000 hours Three jobs were worked on during the current period. Table A shows the cost information of the jobs. Table A Job Material Requisitions Time Ticket

911 $68,000 $78, 912 $63,000 $81,

specific to each job. As such, the designer has incentive to complete the jobs in a cost effective and timely manner.

RIS’s budgeted MOH, DLH and Machine Hours (MH) for the year 20X8 are estimated as follows. MOH DLH MH Design Department Variable $2,400,000 10,000 12, Assembly Department Variable $1,200,000 240,000 2, Assembly Department Fixed $2,400,

Appended below are relevant data for three job orders processed by RIS during December 20x8. Job Order #124 #125 # Quantity in units 4,000 4,000 2, Contract Price $360,000 $300,000 Cost plus** Direct Materials $225,000 $232,000 $126, Designer fee $5,000 $8,000 $12, Assembly labor $18,000 $9,000* $7,

• 40% assembled ** Normal Product Costs plus 30% Jobs #124 and #126 were completed within their respective specified deadlines and Job #125 is still in progress. Job #124 was delivered and billed in the last week of December 20x8. Accounting entries in the ledger account for Job #124 are as follows before MOH was posted in December 20x8:

Work in Process # Direct Materials $225, Designer Fee $5, Assembly Labour $18,

The balance, as at 30 November 20x8, in the MOH account was $9,250 Dr. In December 20x8, actual MOH incurred was $109,350 and applied MOH for the 3 jobs were yet to be recorded. Job #125 is an order for leather strap dress watches. The purchaser for raw material made an error on the leather straps ordered. The strap was 2 cm longer than required. When the error was discovered, production operators cut away the extra leather and discarded the extras as they could not be re- used. The additional leather costs 98 cents more per unit. The entire cost of leather straps was included in the material cost charged to the accounts.

Wilson, a designer and account manager for Jobs #124 and #126 complained that the company’s policy on overhead application cost him to earn less incentive payment for both jobs. He suggests that MOH should be applied using departmental rates based on appropriate cost drivers. With the

help of other designers, he obtained the machine times used in the Design department for Jobs #124 and #126 were 40 hours and 50 hours respectively.

In January 20x9, there was a phone call from the customer of Job #124 informing RIS that 50 units of watches were found to have broken glass faces. RIS has accepted responsibility for the return of the watches and the customer does not want replacements.

Required:

(a) Compute and record the necessary journal entries to account for the production costs and sales of Job #124 completed in the last week of December 20x8. (b) Based on information obtained in January 20x9 from the customer of Job #124, prepare necessary journal entries to record the costs related to the return of the 50 damaged units. Explain the impact on profits of Job #124 if the damaged units were treated as normal spoilage instead (show workings where relevant). (c) Compute the total amount of additional product costs that RIS will incur if, during 20x8, the customer for Job #125 requested to increase the order from 4,000 to 5,000 units. State your assumptions where applicable. (d) The designers’ incentive payments are treated as period expenses. Discuss the appropriateness of this accounting treatment in relation to determining product costs. (e) Calculate the over/under applied MOH for the year ended 31 December and write a journal entry to close this MOH variance. (f) Explain the basis of Wilson’s complaint with clear supporting computations. (g) Using your knowledge of organisational architecture, discuss if RIS should change the incentive scheme for designers. Give reasons to support your recommendation.

Question 8 (2014 July Q4)*

Best Talents Pte Ltd is a human resource management consulting firm that specializes in recruiting senior management staff on behalf of its clients. The fee charged to employ a person is set at 50% of the first year’s remuneration package for the person being employed. Best Talents Pte Ltd employs job order costing to work out the profitability of each job. The firm charges direct labour, advertising costs, travel costs and any other costs directly traceable to the job. Best Talents Pte Ltd also allocates its overhead costs to jobs at a rate based on the first year’s remuneration package for the person being employed. Best Talents Pte Ltd expects to successfully recruit 220 managers for its clients in the coming year with an average remuneration package of $150,000. Operating expenses budget for the coming year: Recruitment consultants’ salaries and benefits $1,240, Secretarial and other staff salaries 120, Information technology costs 60, Printing, telephone, postage, stationery 25,

Which type of business would most likely use a job order costing system?

What is an example of a company that uses job order costing?

Which type of business would be most likely to use a job order costing system quizlet?